6 min read

Liquid(ity) Diet

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Happy Thursday!

It’s time to put away the sandals and bring out the boots (at least for many of our Northern Hemisphere readers). If you listen very, very closely you can almost hear the strains of Mariah Carey’s “All I Want for Christmas” growing louder.

But according to many experts and business leaders, winter is also coming for the economy. Persistent inflation and rising interest rates, the war in Europe, and lockdowns in China are all having a chilling effect on growth around the world. While nothing is for certain, a recent survey showed most US CEOs expect a recession in the next year. With all of these elements swirling around, here are some links that can help explain what’s going on or that we’ve found especially relevant now:

“Siri, What is a Recession?”
What a mighty dollar means for your money
♫ The interest rate’s connected to the… inflation ♫
Some of our favorite inflation-fighting strategies (...and a few more here)

There’s no need to panic and the future isn’t set in stone, but an economic slowdown (particularly one that the Fed is pretty committed to) can affect your finances in a few ways. Typically share prices sink and unemployment rises. The labor market is already showing signs of cooling as companies tighten their belts. Experts keep reminding us that it is important to stay invested even if markets get more volatile, and we walk through a number of ways you can protect yourself and the cash you have squirreled away for a rainy day lower down in today’s newsletter.

Since we like to cover the many ways money intersects with your life, we cannot hold ourselves back from mentioning economic trends are also affecting the newest food trend “spreading” on our TikTok feeds, and it’s bad news or good news depending on where you stand. The price of the main ingredient in butter boards is at an all-time high and expected to keep rising as the US faces a major shortage ahead of the holiday baking season.

News you can use

Graphic of newspaper with magnifying glass

The aftermath of Hurricane Ian is proving that investing in climate resiliency pays off. CNN has the story of a 100% solar community that endured the storm with no loss of power and minimal damage. Meanwhile, Florida’s largest electric utility reports that its efforts to reinforce the grid, such as by burying power lines, are helping it to restore power more quickly.
Fortune and Entrepreneur are both inspiring us with their latest lists of influential women reshaping our future. The women who made it onto Fortune’s Most Powerful Women list are transforming the world’s largest companies. And Entrepreneur’s 100 Women of Influence spotlights many founders who are influencing the way we reduce waste, heat our homes, diagnose diseases, and more.
September 15 to October 15 is Hispanic Heritage Month and you can participate by supporting Hispanic and Latinx-owned small businesses or explore depositing money at one of the many Hispanic-owned or led community banks that lend to entrepreneurs. Since we’re talking about access to capital and achievements, we also recommend learning about Romana Acosta Bañuelos, who co-founded the first Latino-owned bank in California, started a multi-million dollar food company and was the first Latina US treasurer. Bonus fact: FWIW Advisory Board member Rosie Rios was the 43rd US Treasurer.

Sometimes you need to break into the (piggy) bank

Besides sharpening your resume, you can prepare for a potential recession by creating a financial cushion to fall back on in case times get hard. Experts say everyone should have some savings they can easily access, aka an emergency fund.

Having this kind of buffer can help you sleep better at night than all the melatonin gummies in the world. When life throws you a curveball, like unexpected medical bills, a pay cut, or losing your job, an emergency fund can help you avoid debt, selling your assets, or a strict diet of instant ramen.

How much should I save for emergencies?

The general rule of thumb is three to six months of expenses, but this may not be ideal for everyone. The size of your emergency fund can depend on your individual circumstances, like how secure your job is, if you have family to support you, your ability to cut spending if required, etc.

Financial experts do not have a hard and fast rule on how much you should save. Suze Orman counsels 12 months of expenses, while Dave Ramsey suggests 6 months should do, but if you have any debt besides a mortgage, you should start with a small $1,000 in savings. He says only once you’ve paid off all your consumer debts should you continue building your emergency fund. You can follow this or choose to eliminate just your high-interest credit card debt first before starting on emergency savings, as Ellevest CEO Sallie Krawcheck advises.

Where should you keep your cash?

You may be too old to still have a piggy bank, but that doesn’t mean that your sock drawer is any better for one simple reason — inflation. As prices rise, the buying power of your money falls. Earning some interest on your savings can mitigate this and help your cash keep up.

That said, safety and liquidity (the ease of converting an asset to a fair amount of cash), are the main priorities for your emergency fund. Any generation of returns is an unexpected win. All asset types lie somewhere on the spectrum of illiquid/fixed to highly liquid, and you want your emergency fund to be on the wetter side of this particular spectrum. Below are a few options to consider. Always remember to make sure that you know which accounts you open are insured by the federal government and which are not. You can use this tool to lookup FDIC-insured banks.

1. Savings accounts: It’s wise to hold your emergency fund in a bank account different from the checking account you use for everyday transactions. If you have not seen your savings account increase your interest rate lately, you might want to look for high-yielding options as the Fed hikes rates. Many are raising rates to attract consumers and shopping around here may be a worthwhile use of your time. Check for any withdrawal penalties and maintenance fees as you compare.

It may also be a good idea to create a savings account exclusively for your emergency funds and name it “Emergency” as a reminder to yourself to keep your hands off it. If your automatic direct deposit program allows it, Greg McBride, chief financial analyst at Bankrate.com, suggests having part of your paycheck go directly to that account.

2. Money market accounts: This is a type of bank account that can typically earn you more interest than a savings account. Some institutions even allow you to access your cash directly with a debit card or by writing a check. However, many accounts have a minimum balance requirement to earn interest or avoid monthly fees, so if you’re starting small it may be harder to find one that suits you.

3. Certificates of deposit (CD): While this is a safe place to keep your money and the returns are greater, it is better suited to long-term plans since it isn't very liquid. Your money is locked away with a bank for a fixed term and withdrawing early can see you pay a hefty penalty and lose part or all of the interest earned. You also can’t add money to pad it later on. You can consider short-term CDs or the few no-penalty CDs available. Some people like to build a “CD ladder” with these instruments to maintain regular access to some money.

4. Inflation-fighting savings bonds: Another option is loaning the money to the federal government. The interest on the Treasury’s Series I savings bonds (I bonds) adjusts with inflation every six months (meaning they have been raising the interest rates they pay holders of these bonds lately). But you have to hold them for a minimum of one year and you lose three months of interest if you cash in before five years. As interest in this investment (capped at $10,000 a year) has grown the wonky TreasuryDirect website has gotten lots of bad reviews. However, upgrades are being rolled out — with the first one going live this week — and the customer experience should improve.

5. Ask about employer plans: Some companies now offer emergency savings accounts and programs as perks besides retirement accounts. Make sure to check if one is available to you and take advantage of any contribution matching.